The ringgit is expected to strengthen further against the US dollar in the coming week as weaker-than-expected US labour market data reinforces expectations that the US Federal Reserve will keep interest rates on hold, according to Kenanga Investment Bank.
In a currency market note, Kenanga said the ringgit traded broadly within its projected range of 4.07 to 4.09 against the US dollar over the past week, with fading expectations of near-term US rate hikes helping to temper broader US dollar strength.
The research house said softer US employment figures prompted investors to scale back bets on an imminent Federal Reserve tightening cycle, allowing the ringgit to recover as the greenback surrendered part of its gains made after the latest Federal Open Market Committee (FOMC) meeting.
Kenanga noted that although recent US labour market data continued to show resilience, it was insufficient to justify earlier interest rate increases, particularly after Federal Reserve Chair Kevin Warsh refrained from endorsing aggressive market expectations for further tightening.
The bank said foreign exchange positioning has also become less supportive of the US dollar ahead of the release of the FOMC meeting minutes next week.
June’s US non-farm payrolls increased by only 57,000 jobs, significantly below market expectations of 113,000, while the unemployment rate edged down to 4.2%. However, Kenanga said the decline in unemployment largely reflected weaker labour force participation rather than stronger hiring activity.
Looking ahead, investors will closely monitor the FOMC minutes for further clues on the central bank’s policy direction and whether a July rate decision remains a possibility. Markets will also keep an eye on developments in the Middle East, particularly US-Iran relations, as well as upcoming Malaysian economic data.
Kenanga’s base-case scenario assumes geopolitical tensions between the United States and Iran remain contained without disrupting shipping through the Strait of Hormuz.
The bank also expects lower US gasoline prices to contribute to a softer June US inflation reading when consumer price index data is released on July 14, strengthening the case for an extended pause in US interest rates rather than renewed monetary tightening.
Should inflation continue to ease, Kenanga believes investors are likely to reduce long US dollar positions, supporting further appreciation of the ringgit.
The research house expects the US dollar-ringgit exchange rate to trade between RM4.05 and RM4.08 in the near term, with risks skewed towards additional gains for the Malaysian currency.
From a technical perspective, Kenanga said the US dollar-ringgit pair remains neutral, with a decisive break below RM4.06 potentially opening the way towards RM4.05, while RM4.09 remains the key resistance level.
